There
have been repeated reports that the Treasury was
poised to ban such deeds of variation, but they
remain an entirely legal
device.

London, April 22, 2007

How
David Miliband avoided inheritance tax on Marxist
father's £1.5million house

By
Jonathan OliverOriginal version:

DAVID
Miliband (at left with father) is living in
a £1.5million London townhouse at the centre
of a complex inheritance-tax avoidance scheme
Gordon Brown has pledged to ban.

The Cabinet
Minister, who is being urged to challenge Mr Brown
for the Labour leadership, exploited an Inland
Revenue loophole which has been used to reduce
deathduty bills.

Mr Miliband lives
with his wife Louise, a classical musician,
in a four-storey terrace in ultra-fashionable
Primrose Hill, North London.

Previously, the
Georgian property had been the family home of his
parents, Marxist sociologist Ralph and
Marion, also a Left-wing academic.

Ralph died in 1994
aged 70, leaving his estate, then valued at
£349,000, to his wife. But it is understood
that shortly after his death, Marion and her sons
David and Edward, who is also a
Labour Minister, agreed a 'deed of variation'.

The move meant
that 40 per cent of the equity of the Primrose Hill
home was transferred to the sons, who were each
given a 20 per cent share in the house.

Accountants say
this unusual type of agreement is almost always
drawn up in order to reduce a family's total death
duty bill.

Mr Miliband's
complicated arrangement will raise eyebrows among
Labour colleagues, not least because it goes
against his family's deeply-entrenched socialist
background.

Belgian-born
Ralph, who fled the Nazis in 1940, became in the
Sixties and Seventies one of Britain's most
celebrated intellectual disciples of Karl
Marx, who famously frowned on the concept of
"private property".

Ralph, who was
originally called Adolphe but changed his
name when he came to Britain, was an iconic figure
on the Labour Left, whose writings influenced two
generations of Socialist leaders.

The death duty
loophole was named by Gordon Brown as one of 25
"tax abuses". The Chancellor has complained that
the wealthy regard inheritance tax as
"voluntary".

There have been
repeated reports that the Treasury was poised to
ban such deeds of variation, but they remain an
entirely legal device.

Inheritance tax is
charged at 40 per cent above a set threshold, which
in 1994 was £150,000. The Milibands' deed of
variation would have ensured that Ralph's
zero-rated death duty allowance was fully used
up.

This would have
potentially meant that when Marion died, a slice of
the family estate was already in the names of the
two children, so the final inheritance tax bill
would be reduced.

Primrose
Hill, near Regent's Park, was once a popular haunt
with radical intellectuals and hosted a strong
community of Jewish emigres who, like the Miliband
parents, fled the Holocaust.

The Miliband house
on Edis Street became a socialist salon. The young
David Miliband and his brother Ed were
introduced to radicals including Tony Benn
and firebrand polemicist Tariq Ali at the
family's celebrated open-house parties.

Ralph enjoyed a
transatlantic lifestyle, shuttling between academic
posts in London and America, while occasionally
attending conferences in Communist Eastern Europe
and Fidel Castro's Cuba.

However, in the
dozen years since Ralph Miliband's death, their
North London neighbourhood has transformed into a
fashionable playground for hedge-fund millionaires
and celebrities such as Jamie Oliver and
Jude Law.

And the Miliband
property which in 1994 was worth around
£300,000 would now, according to estate
agents, fetch at least £1.5million.

The four-bedroom
house remained in the hands of Marion Miliband
until 2004.

At this point,
David Miliband offered to buy out his mother who is
now 72 and brother and turn it into a family home
for himself. He and Louise have a two-year-old
adopted son Isaac.

Land Registry
documents show that three years ago, David, 42,
paid £800,000 for the property, which was
independently valued to ensure that his mother and
brother received a fair deal.

However this
buy-out would have prompted a large tax bill for
younger brother Ed, who would have had to have paid
capital gains on his 20 per cent stake in the
family house.

And whenever David
eventually sells the property, he will also have to
pay a similar capital gains tax bill to cover the
period when he was not living there.

A source close to
Mr Miliband said the brothers were unlikely
ultimately to benefit financially from the deed of
variation because any reduced inheritance tax bill
would be offset by the need to pay capital
gains.

A spokeswoman
said: "There is no question of the Milibands
avoiding inheritance tax and all taxes have been
paid."

Mr Miliband is
still under pressure to run for the Labour
leadership when Tony Blair makes his expected
resignation announcement next month.

Last week, a
report by the BBC suggested that he had made his
mind up not to make a challenge and this weekend he
again spoke of his admiration for Mr Brown.

However, senior
Blairites remain hopeful that if the Chancellor
stumbles in the next few weeks, Mr Miliband can be
persuaded to change his mind.

Ed Miliband, a
former aide to Mr Brown and now a Cabinet Office
Minister, still lives round the corner from the old
family home. He recently purchased a £650,000
flat above a commercial property.

Mr Miliband, whose
Government has championed 24-hour drinking, was
reported to have issued an official complaint that
a new off-licence open until 11pm would spoil the
'quiet enjoyment of my home'.

The Miliband
family estate also includes a country cottage in
Oxfordshire, which was bought by Ralph and is now
believed to be owned by his widow Marion.